The Gini coefficient is a summary statistic that measures how equitably income is distributed in a population. It is derived from the Lorenz curve which plots the cumulative percentages of the income and the population against which it is distributed. The line at 45 degrees thus represents perfect equality of incomes. The Gini coefficient is the ratio of the area that lies between the line of equality and the Lorenz curve divided by the total area under the line of equality. A Gini coefficient of 0 represents perfect equality, while an index of 100 implies perfect inequality. A low Gini coefficient indicates a more equal distribution of wealth among the population while a higher one represents more inequality. The Gini co efficient for was Pakistan was around 0.68 in 2006 while Sweden’s was 0.24.The ideal Gini coefficient lies between 0.25 and 0.40 because people at different levels of specialization cannot be paid equally and there is disincentive to work. Similarly, at levels where income equality is too high law and order situation worsens affecting development negatively. By using this we cannot only find out wealth and income equality of a population but also compare the income distribution of two different sectors or countries. It also indicates how the distribution of income has changed within a country over a period of time. However, even though countries may have identical Gini coefficients they may differ greatly in wealth and different methods of collecting information makes it difficult to compare statistics.
Economics Group 1
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